Inflation in key African economies to remain above targets

Inflation rates in major sub-Saharan African economies are projected to remain above target levels despite recent substantial interest rate hikes, according to a Reuters poll. Central banks in the region have been working to reverse these rate increases, yet inflation has not mirrored the disinflation trends seen in other parts of the world. Weak currencies and high food prices have contributed to persistent inflation, despite significant rate hikes ranging from 450 basis points in Zambia to 1,275 basis points in Nigeria over the past two years.

The poll, conducted between July 17 and 24, indicates that inflation in key African economies such as Angola, Ghana, and Nigeria is unlikely to return to central banks' target ranges in the near future. In Nigeria, the continent's largest economy, inflation is forecast to decrease to an average of 19.9 per cent next year from 30.3 per cent this year, still well above the central bank's target range of 6-9 per cent. Nigeria's central bank recently raised its benchmark lending rate by 50 basis points to 26.75 per cent.

In June, Nigeria's inflation rate was 34.19 per cent, while neighboring Ghana experienced a rate of 22.8 per cent. Ghana's inflation is expected to average 13.1 per cent next year, down from 21.1 per cent this year, though still above the Bank of Ghana's target of 8per cent with a 2 percentage point margin of error. Ghana's authorities are anticipated to end the year with interest rates 200 basis points lower, starting with a 50 basis point cut in its main rate to 28.50 per cent expected on Monday.

J.P. Morgan noted that predicting the peak of inflation in economies such as Nigeria, Zambia, and Angola has become increasingly challenging, although a peak is still expected within the next one to two months. They also highlighted that the subsequent disinflation path would be slow and fraught with risks of further inflationary pressures.

In Angola, inflation is expected to drop to 16.7 per cent next year from 27.5per cent this year, while in Zambia, it is forecast to ease to 11.0 per cent from 14.2 per cent. Key factors behind the persistent inflation in the region include cost-push pressures, loose fiscal policies, and foreign exchange weaknesses, according to J.P. Morgan.

The only exception noted in the poll is Kenya, where inflation is expected to increase slightly next year to 5.6per cent from 5.5per cent this year. Nevertheless, Kenya, along with South Africa, is considered a success story on the continent with inflation running in single digits.